Convexity, magnification, and translation: the effect of managerial option-based compensation on corporate cash holdings

Article


Belghitar, Y. and Clark, E. 2014. Convexity, magnification, and translation: the effect of managerial option-based compensation on corporate cash holdings. The Journal of Financial Research. 37 (2), pp. 191-210. https://doi.org/10.1111/jfir.12034
TypeArticle
TitleConvexity, magnification, and translation: the effect of managerial option-based compensation on corporate cash holdings
AuthorsBelghitar, Y. and Clark, E.
Abstract

Using the distinctions among the convexity, magnification, and translation effects, we identify the pertinent parameters and examine empirically the relation between cash holdings and option-based managerial compensation. We show that changes in delta reduce the effects of magnification and convexity on managerial risk aversion. We also provide evidence that there is a negative relation between the option-based incentives delta and vega and cash holdings. These results are robust when incentives are extended to include all executive board members and when the sample is broken down according to different risk characteristics.

PublisherWiley
JournalThe Journal of Financial Research
ISSN0270-2592
Electronic1475-6803
Publication dates
Print11 Jun 2014
Online11 Jun 2014
Publication process dates
Deposited29 Jun 2015
Output statusPublished
Publisher's version
License
Digital Object Identifier (DOI)https://doi.org/10.1111/jfir.12034
LanguageEnglish
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